Max, IPC Add Cash To Merger Deal

IPC Holdings and Max Capital announced they will shell out some cash to sweeten their proposed merger deal in advance of a shareholder vote.

Their move comes some time after Validus, which is attempting to replace Max Capital as a suitor with a hostile takeover, sweetened its bid.

Terms of the original definitive amalgamation agreement announced by IPC and Max in early March called only for an exchange of stock shares.

IPC's Bermuda-based reinsurance subsidiary writes only short-tailed property-catastrophe business. Max, through its operating units, writes longer-tailed specialty business.

Less than a month after IPC and Max announced their proposed merger, Validus Holdings came out with a rival bid for IPC--and the representatives of Max and IPC on one side, and Validus on the other, have been waging a public battle over IPC ever since.

Yesterday, Max and IPC said they agreed to pay two cash dividends, delivering $2.50 per share to IPC shareholders following the closing of the IPC-Max merger.

The first would be a $1.50 per share dividend in cash payable to IPC shareholders of record as of June 15. An additional $1 per share in cash would be payable to shareholders following closing of the transaction, they said.

Max shareholders will also receive a cash dividend of $1 per share in cash for each share of IPC following the closing of the transaction, which is equal to 64 cents for each share of Max prior to exchange from the closing of the transaction.

The original deal called for holders of Max common stock to receive that 0.6429 IPC shares for each Max share, making the deal value worth more than $900 million.

In a statement announcing the dividends yesterday, Kenneth L. Hammond, chairman of IPC, said, "The agreed-to dividends make an excellent transaction even more rewarding to both IPC shareholders and to all of the shareholders of the combined company."

"The IPC-Max transaction will create a world-class insurer/reinsurer, well positioned for long-term success and superior shareholder value creation through enhanced diversification, scale and capital.

"The hostile offer by Validus, on the other hand, is inferior from a valuation standpoint, is fraught with uncertainty, and only serves the interests of Validus," he said in the statement.

In a letter to shareholders today, Mr. Hammond stressed the importance of closing a deal before the hurricane season is in full swing.

If shareholders disapprove the IPC-Max combination, "the board believes it will not be possible to consummate a transaction with Validus, or with any other party, until well into the 2009 hurricane season due to the foregoing time constraints," he wrote.

"Therefore, any such combination--even if it were a friendly, negotiated transaction approved by the IPC board with Validus or any other party--would be subject to substantial risk of nonconsummation owing to potential hurricane loss," he said.

Mr. Hammond noted that any transaction "negotiated with Validus or another party typically would contain closing conditions directly or indirectly triggered by insured hurricane losses which affected IPC and/or Validus or such other party."

The letter said parenthetically that an example of conditions that could be "indirectly triggered" by insured hurricane losses are rating agency or lender consent conditions.

In a separate letter to shareholders, W. Marston Becker, chair and chief executive office of Max Capital, continued to stress the attractiveness of the diversification benefits of its deal, as he has done in previous communications. The risks written by Max and IPC are noncorrelating, he said.

Validus has continued to contend that one reason its proposed deal is superior is because it would create a market-leading carrier in Bermuda's short-tail reinsurance and insurance markets.

Validus improved financial terms of its original deal last month, offering IPC shareholders cash and more shares of Validus stock.

The sweetened deal delivered to the IPC board in mid-May and valued at about $1.7 billion, offered $3 in cash to each IPC shareholder and 1.1234 Validus voting common shares for each IPC common share.